23 May 2019

South Africa: SA Reserve Bank Holds Rates, Signals a Cut On the Horizon

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analysis

The South African Reserve Bank kept the repo rate, the main lending rate, on hold as expected at 6.75% on Thursday. Two out of five members of the Monetary Policy Committee voted for a cut, and the statement signalled the next move will likely be downward. This is largely because the deplorable state of the economy has put a lid on any demand pressures that could reignite inflation.

The South African Reserve Bank (SARB) kept the repo rate steady at 6.75% on Thursday, but it was close. Three members of the MPC were in favour of no change, while two voted for a cut of 25 basis points. And the next move will almost certainly be south, if the prevailing forecasts on the inflation and growth fronts hold.

"The implied path of policy rates generated by the Quarterly Projection Model is for one cut of 25 basis points to the repo rate by the end of the first quarter of 2020," the Monetary Policy Committee (MPC) said near the end of its statement. In March, a 25 basis point hike before the end of 2019 was foreseen.

The SARB revised its inflation forecasts downward. Headline inflation in its view is...

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